Navigating Tariffs and Market Uncertainty: Value Creation in M&A with Chris Felderman of Palm Tree LLC 5-9-25

Summary

Becker Private Equity & Business Podcast Summary

Episode Title: Navigating Tariffs and Market Uncertainty: Value Creation in M&A with Chris Felderman of Palm Tree LLC
Host: Scott Becker
Guest: Chris Felderman, Senior Managing Director and Co-Head of Consulting at Palm Tree LLC
Release Date: May 9, 2025

In this insightful episode of the Becker Private Equity & Business Podcast, host Scott Becker engages in a comprehensive discussion with Chris Felderman of Palm Tree LLC. The conversation centers around the current landscape of tariffs, market uncertainty, and their implications for mergers and acquisitions (M&A) within the private equity sector. Chris provides expert analysis on how businesses can navigate these challenges to drive value creation.

Introduction to Palm Tree LLC

[01:14] Chris Felderman:
"We like to consider ourselves the modern M&A and operations advisory firm and our primary objective... is to provide perspectives on financial and operational data to enable buyers and sellers to make more informed decisions to drive value creation."

Chris introduces Palm Tree LLC as a versatile consulting firm that blends the roles of a consulting agency and an investment bank. With a team of nearly 100 professionals across major offices, Palm Tree specializes in financial and operational due diligence, transitional services, and performance improvement to support businesses throughout the entire investment lifecycle.

The Impact of Tariffs and Market Uncertainty on M&A

The discussion begins with the current state of the M&A market, which has been experiencing fluctuations influenced by tariffs and broader economic uncertainties. Scott Becker highlights recent market volatility and references insights from industry leaders like Mark Rowan, CEO of Apollo, regarding the M&A environment.

[03:39] Chris Felderman:
"The uncertainty around [tariffs] is absolutely increasing challenges for PE firms... it's also in their ability to source, evaluate and ultimately close on those new investment opportunities."

Chris emphasizes that tariffs are not only affecting the operational aspects of portfolio companies but are also hindering private equity firms' capacity to identify and secure new investments. This dual impact creates a more challenging environment for value creation through M&A activities.

Short-Term Challenges and Strategic Responses

Focusing on immediate concerns, Chris outlines the essential steps that portfolio companies must take to mitigate the effects of tariffs.

[04:35] Chris Felderman:
"Management teams... need to identify the product and supply chain exposure that each of their portfolio companies have... assess the effect of the cost increases on both profitability and liquidity."

Key short-term strategies include:

• Supply Chain Assessment: Identifying which components and raw materials are subject to tariffs.
• Cost Analysis: Evaluating how increased costs will affect profitability and cash flow.
• Inventory Management: Deciding whether to pre-buy inventory to avoid tariffs and understanding the implications on working capital.
• Vendor Negotiations: Exploring opportunities to negotiate with suppliers to maintain margins without passing costs onto customers.

These measures are crucial for maintaining operational stability and financial health in the face of tariff-induced disruptions.

Long-Term Strategies for Sustainability

Beyond immediate actions, Chris discusses longer-term strategies that businesses can adopt to enhance resilience against tariff-related challenges.

[06:43] Chris Felderman:
"Assessing the ability to move suppliers or whether products can be redesigned with components that don't have as much exposure to tariffs."

Long-term initiatives include:

• Supplier Diversification: Reducing dependency on suppliers from regions affected by tariffs.
• Product Redesign: Modifying products to utilize components that are less susceptible to tariffs.
• Operational Flexibility: Building more adaptable supply chains that can respond to changing economic conditions.

These strategies not only mitigate the impact of current tariffs but also prepare businesses for future uncertainties.

Services vs. Goods: Differential Impact of Tariffs

Scott inquires about the varying effects of tariffs on different sectors, particularly comparing goods and services.

[07:02] Chris Felderman:
"The services side is less prone to the tariffs... we see an uptick in deal activity which is more focused on services and items that don't need to be sourced from outside of the United States."

Chris observes that the services sector is relatively insulated from the direct impact of tariffs, potentially positioning it for increased M&A activity. This sector's focus on domestic sourcing reduces vulnerability to international trade policies, making it a more attractive arena for deals amidst the current uncertainty.

Stock Market Fluctuations and Emerging Opportunities

The conversation shifts to recent positive movements in the stock market, despite previous downturns, and what this means for the M&A landscape.

[08:11] Chris Felderman:
"The uptick in the stock market is more driven on whether there's certainty or not... It has allowed itself to calm down with some recent developments and changes in the tariffs."

Chris attributes the recent stock market recovery to growing market confidence as uncertainties around tariffs begin to ease. He suggests that this stabilization may lead to renewed optimism and potential deal-making opportunities, particularly in sectors less affected by tariffs.

[09:36] Chris Felderman:
"If there is a slowdown in deals and sponsors do need to hold on to their portfolio companies a little longer than they originally anticipated, now is a good time to make additional investments in certain value creation initiatives."

In scenarios where deal flow slows down, Chris recommends that private equity firms focus on enhancing their portfolio companies through strategic investments in value creation initiatives. This proactive approach can position businesses for greater success once market conditions become more favorable.

Current Focus and Excitement at Palm Tree LLC

When asked about his current priorities, Chris shares insights into Palm Tree LLC's strategic directions amidst the evolving market dynamics.

[09:55] Chris Felderman:
"We're seeing an uptick in sort of that sell side preparedness, sell side quality of earnings, even in carve outs... there's opportunity there to get out in front of some of these tariffs and we can be helpful with that."

Despite a slowdown in buy-side M&A activity, Palm Tree is experiencing increased demand for sell-side services, including quality of earnings assessments and carve-out analyses. Additionally, the firm is actively assisting clients in navigating tariff-related challenges and preparing for future financial and operational optimizations.

Conclusion

The episode concludes with Scott expressing gratitude towards Chris and acknowledging Palm Tree LLC's expertise and proactive stance in the current economic climate. Chris reinforces the value that consulting services provide to businesses aiming to thrive amid uncertainty and market fluctuations.

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This episode offers valuable perspectives for private equity professionals and business leaders on managing the complexities introduced by tariffs and market volatility. Chris Felderman's insights highlight the importance of strategic operational adjustments and the potential opportunities that arise even in challenging times.

Transcript

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[Scott Becker]

This is Scott Becker with the Becker Private Equity and Business Podcast. Thrilled today to be joined by Chris Feldman. Chris is the Senior Managing Director and co head of Consulting at a Palmtree llc. Palmtree is remarkable mix of a consulting firm, an investment bank and really really bright, bright people. We're going to talk to Chris today about sort of the deal market, the business market, you know, in light of tariffs, some economic concern that seems to be up and down, some days really positive, some days a little more concerning, but just a world in which there's a lot of uncertainty. Chris, before we get started, can you take a moment to introduce yourself and tell us a little bit about yourself in Palmtree?

[Chris Felderman]

Sure. Thanks Scott. It's great to be here. As you said earlier, my name is Chris Felderman. I'm a Senior Managing Director here at Palm Tree. I lead our Chicago office and I oversee the operations of the firm's consulting practice, Palmtree. We like to consider ourselves the modern M and A and operations advisory firm and our primary objective especially of our consulting offering is to provide perspectives on financial and operational data to enable buyers and sellers to make more informed decisions to drive value creation. We typically provide support while we can provide support across the entire investment life cycle pre transaction. Our offerings include financial and operational due diligence, so think quality of earnings. We also provide pre close accounting and finance operations diagnostics around the people, process and systems as well as data and analytics assessments and post close. Our transitional offerings are generally focused around the things that companies taking on institutional capital for the first time typically have not focused on, which includes accounting and finance support, enhancing that and optimizing the financial reporting process, cash management network and capital management, improved process documentation and even interim support such as CFO, VP of Finance or Director of FP&A and the like. And on the performance improvement and value creation side, we offer solutions like audit preparedness, financial forecasting and budgeting enhancements, data and analytics improvements and implementations as well as operational assessments and improvements that provide true value creation and enhance enterprise value. And we do this through a solution. We offer these solutions through A bench of nearly 100 professionals across our four main offices in LA, Chicago, Detroit and Dallas, many of which have prior big four corporate finance or investment banking experience.

[Scott Becker]

Thank you and take a moment. You know, in this time where M and A is a little bit softer and just starting to maybe get moving again, there's been so much discussion of tariffs, uncertainty and so forth. How important is operations consulting and businesses just having their house in order and in great shape to make sure they're thriving either way? How important is that part of the business to your customers?

[Chris Felderman]

Yeah, I think it's especially important for private equity backed portfolio companies that, you know, whether they're purchasing raw materials on an import basis or whether they are, you know, manufacturing overseas and need to bring that product back to back stateside. I think now is a time to, to really assess what the cost of those imports are doing. And I think, you know, our sense is that these announcements and, and generally speaking the uncertainty around them is, is, is absolutely increasing challenges for PE firms and, and it's not only in the operations of their portfolio companies, but it's also in their ability to source, evaluate and ultimately close on those new investment opportunities. And I can go into some detail on, you know, some of the short term risks and, and opportunities that they can look, look into and then maybe some of the long term as well.

[Scott Becker]

No, I think, I think that'd be great. I mean there's just a recent article in the Wall Street Journal about increased challenges and people trying to figure things out through that, as well as recent talk by Mark Rowan, the CEO of Apollo, about challenges and almost a pause in the M and A environment. What is your sense of some of the shorter term challenges, the longer term challenges and what people could do about that?

[Chris Felderman]

Yeah, in terms of the shorter term challenges, I think immediate term portfolio companies, their management teams, even the deal teams that are working on them on the sponsor side, they really need to identify the product and supply chain exposure that each of their portfolio companies have, meaning what key costs either are affected or going to be affected by current or pending tariffs. You know, maybe they manufacture goods in another country, maybe they import raw materials for production here in the US Once they understand that, they then need to assess the effect of the cost increases on both profitability and liquidity. You know, how much inventory can the company pre buy or how much of any cost increase cost increases can it absorb before having to pass some of those costs along to its customers and how sensitive will the customer base be to those increases? Or are they able to negotiate Something mutually beneficial with their vendors to help preserve their margins. And in the case of pre buying inventory to avoid any short term tariffs, what are the downstream effects of tying up working capital in that way? I think those are some of the key immediate and short term assessments that need to be made. And then over the longer term, it's perhaps assessing things like the ability to move suppliers or whether products can be redesigned with components that don't have as much exposure to tariffs. But obviously those take a little bit longer to play out. And given the uncertainty right now, it might not be necessary, but it's something that can absolutely be planned for for the longer term.

[Scott Becker]

Thank you. And then in the services world, you know, outside of the sort of, the sort of harder court goods world, are you seeing a different take on tariffs or similar concern? What do you hear out there on the services side versus the good side where people are importing goods and so forth?

[Chris Felderman]

Yeah, well, I think the services side is less prone to the tariffs in that, quite honestly might be where we see an uptick in deal activity which is more focused on, you know, services and items that don't need to be sourced from outside of the United States. So, you know, if there is a potential silver lining to the environment we're in from a deals perspective, I would imagine that's where, you know, a lot of the deal flow will begin to come from if the uncertainty continues.

[Scott Becker]

Thank you. And we saw over the last, the last two weeks since things hit a really bad spot a little bit ago in the stock market, the deal market, all of a sudden we saw a record run of positive days in the S and P. Also more optimism, things looking a little bit more exciting and positive. The stock market's back up, which often is. It's not directly correlated to the PE deal market, but it gives people some hope that things are looking more positive. Where is some of the good news on the horizon? Where can we see some of these silver linings as you just mentioned?

[Chris Felderman]

Yeah, I think the uptick in the stock market is more driven on whether there's certainty or not. And I think just the shock to the system that happened over the past several weeks and it's allowed itself to calm down with some recent developments and changes in the tariffs. And I think people are in the market in general is getting a little bit more comfort with that. Not quite back to where we were pre announcement, but you know, obviously getting closer. I think some of the good news is that not all, like I said earlier, not all middle market, lower middle market companies are significantly impacted by the recent tariff news. So on a deals front, I think deals can continue to happen, say in the financial services, maybe in the healthcare sectors where there isn't a sourcing of components from overseas and it's more focused on the services side of things. And furthermore, from a silver lining perspective, I think if there is a slowdown in deals and sponsors do need to hold on to their portfolio companies a little longer than they originally anticipated, now is a good time to make additional investments in certain value creation initiatives as a way to enhance that business for when a sale process does begin to make more sense and there is more certainty in the market.

[Scott Becker]

Thank you. And what are you most focused on and excited about currently? You head up the Chicago office, you co ed consulting. Chicago seems to remain vibrant from a business perspective and the consulting rate remains the one of the core, core areas. What are you most focused on and excited about currently?

[Chris Felderman]

Yeah, I mean we've definitely seen a slowdown in deals in our transaction advisory discipline in terms of buy side volume, but we're, we are seeing an uptick in sort of that sell side preparedness, sell side quality of earnings, even in carve outs. So I think there's potential there and that's, that's got us excited that, you know, there is still a need for consulting services. And while it might not be on the deal front that, you know, these portfolio companies, there's opportunity there to get out in front of some of these tariffs and we can be helpful with that. And even when it comes to, you know, planning for liquidity or readiness around this, that's where we can really provide value to our clients.

[Scott Becker]

You know, simply fantastic the work that you and your team do. Again, we're visiting with Chris Felderman today. Palm Tree llc. Great, great group. Chris, I want to thank you as always for joining us today on the Becker Private equity and business podcast. You've got about the brightest team in the business. We really appreciate you spending time with us. Thank you very, very much.

[Chris Felderman]

Thanks Scott. Thanks for having me on.

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